FOREX-Euro hits 2-yr low vs dollar on global growth concerns

By Julie Haviv NEW YORK, July 12 (Reuters) - The euro slumped broadly onThursday, reaching a new two-year low against the dollar, asworries about global economic growth and diminished expectationsof near-term U.S. Federal Reserve stimulus had investorsavoiding risk. The traditional safe-haven Japanese yen stronglyoutperformed both the euro and U.S. dollar after the Bank ofJapan limited itself to tweaking its asset buying program ratherthan easing monetary policy. That was in contrast to recentpolicy easing moves by central banks in the euro zone, Britainand China. "The environment is negative for the euro and pressure ismounting against it," said Camilla Sutton, chief currencystrategist at Scotiabank in Toronto. A test of the June 2010 low of $1.1875, according to Reutersdata, is a material risk. However, the threat could be temporarygiven chances a strong dollar could spark more aggressive Fedpolicy that would weaken the greenback and support the singlecurrency, according to Sutton. A test of the June 2010 low of $1.1875, according to Reutersdata, is a material risk, but that could be temporary as astrong dollar is likely to increase the risk of more aggressiveFed policy, according to Sutton. "As long as the door is open to QE3, it is difficult to seean environment where the dollar can prove materially andsustainably strong," she said. "Accordingly, we continue toexpect the euro to trend lower, but avert a collapse." Minutes from the Federal Reserve's June meeting released onWednesday showed the Fed is open to a third round ofquantitative easing to stimulate the economy, but the recoverymight need to weaken for a consensus to build. With speculators and long-term currency investors worriedabout Europe's lack of progress in tackling its debt crisis theeuro fell to $1.2165, its lowest since mid-2010. Theeuro, which has slipped for three straight sessions, was lastdown 0.3 percent at $1.2204. Against the yen, the euro fell to a six-week low of 96.40. It last traded at 96.74, down 0.9 percent on the day. Highlighting the euro zone's economic fragility, theEuropean Central Bank said in its monthly bulletin that growthin the 17-country bloc is weak and "heightened uncertainty" isweighing on confidence.

The euro has shed 5.8 percent of its value versus the dollarso far this year, already exceeding the losses it chalked up in2011, with losses accelerating after last week's cut by the ECB. "Every single central bank except for the Fed is easing, anduntil that happens we expect the dollar to stay supported," saidGeorge Saravelos, G-10 currency strategist at Deutsche Bank. "The euro is likely to weaken further as it will be hurt bythe ECB's decision to cut the deposit rate and there will be ashift in funding." ECB policymakers held out the possibility of taking furthermeasures to boost the flagging euro zone economy after a cut intheir deposit rate to zero showed no sign of jolting banks intolending out more money. The ECB's unprecedented cut in the deposit rate meant thatbanks will earn nothing for parking excess funds at the centralbank. Besides, the zero rates would encourage investors to sellthe low-yielding euro and buy higher-yielding riskiercurrencies.

YEN REIGNS The Bank of Japan held its policy rate in a range of zero to0.1 percent, though it did tweak its asset-buying and lendingprogramme. The dollar was last down 0.6 percent at 79.28 yen,holding above chart support at the 200-day moving average around79.01 yen. The dollar had briefly gained against the yen after datashowed the number of Americans lining up for jobless benefitslast week fell to a four-year low. To be sure, fresh evidence ofa cooling global economy was reflected in a separate reportshowing U.S. import prices falling sharply in June.

Governor Masaaki Shirakawa said on Thursday the BOJ wouldnot automatically link its policy with that of other centralbanks. Markets are anxiously awaiting Friday's second quarter grossdomestic product growth number from China, which is expected toshow one of the few growth engines in the world economy isfaltering. A Reuters poll showed economists expect China's growth to have slowed to 7.6 percent in the second quarter, its worstperformance since the 2008/09 financial crisis.